Health Spending Expected to Grow Faster than GDP

Healthcare spending in the U.S. is expected to grow 5.8% per year from 2010 to 2020, outpacing growth in the gross domestic product (GDP) by 1.1 percentage points, according to a report from researchers at the Centers for Medicare and Medicaid Services (CMS).

As a result, healthcare's share of the GDP will increase from 17.6% in 2009 to 19.8% by 2020, Sean P. Keehan, an economist in the CMS Office of the Actuary, and colleagues wrote online in Health Affairs. (The report authors noted that their opinions were their own and not necessarily those of CMS.)

Health spending grew very little in 2010 -- 3.9% -- which the authors attributed mostly to two reasons:

A slowed rate of spending in the Medicare Advantage program, which pays private insurers to cover Medicare beneficiaries; and

Continued losses in employment and health insurance coverage because of the recession

"Private health insurance spending growth is estimated to have been just 2.6% in 2010 as the number of people enrolled in private plans fell by roughly five million," the authors noted. "Moreover, out-of-pocket spending climbed just 1.8% (after 0.4% growth in 2009) as many people continued to restrain their use of healthcare goods and services."

But the growth rate is expected to pick up again for the years 2011-2013 -- to an average of 4.9% per year.

In addition, as the economy recovers, out-of-pocket spending on healthcare also is projected to rise as people use more medical care.

The authors noted, however, that the overall 2011-2013 spending projections are based in part on a mandated cut in of 29.4% in physician reimbursement under Medicare mandated by the Sustainable Growth Rate (SGR) formula.

If the mandated cut actually goes into effect, Medicare spending growth would drop sharply in 2012 to 1.7% (down from 5.9% in 2011), and spending on physician payments would increase by only 0.8%. But SGR-mandated cuts have not been put into effect in nearly a decade, as Congress repeals them.

Under an alternative scenario in which Medicare physician payments are based on the Medicare Economic Index, growth in Medicare spending would rise to 6.6% in 2012, according to the authors.

After that time period, overall national healthcare spending growth will significantly accelerate because of the increased coverage made possible by the Affordable Care Act (ACA), rising to 8.3% in 2014.

"Notably, because many of the newly insured will be younger and healthier, on average, compared to the existing Medicaid and private insurance populations, they are expected to use physician services and prescription drugs to a greater extent than hospital or other more intensive services," the authors wrote.

Growth in spending for physician and clinical services alone is expected to reach 8.9% in 2014, or 3.1 percentage points and $17.8 billion more than would have been expected had the ACA not been passed.

"Given the demographic and health profile of the populations expected to gain insurance through Medicaid or the exchanges -- generally expected to be younger, healthier, and requiring less acute care than those currently insured -- the newly insured are anticipated to devote a higher proportion of their total health spending to physician and clinical services," the researchers wrote.

In 2015-2020, national healthcare spending will increase at an average of 6.2% per year, the authors predicted. During this time period, some large employers will probably stop offering coverage to their workers, they speculated, forcing some workers to seek coverage through newly opened state health insurance exchanges, while others may enroll in Medicaid and some would become uninsured.

However, CMS chief actuary Richard Foster noted in a teleconference Wednesday, the ACA also will cause some employers who are not now offering coverage to begin offering it, "so on balance there will not be a big change in the total number of workers with employer-sponsored coverage," he said.

Also, in 2018, a 40% excise tax on high-cost health insurance plans -- those that cost more than $10,200 for individual employees and $27,500 for families -- will go into effect, encouraging employers to offer employees incentives to enroll in lower-cost plans.

"The effect [of that provision] is likely to be a slowdown in the growth of health services, health insurance premiums, and health spending overall," they wrote. "As a result, in our projection both premiums and the use of health services are expected to grow more slowly in 2018 than in the absence of this provision."

The Obama administration applauded the report.

"The bottom line from the report is clear: more Americans will get coverage and save money and health expenditure growth will remain virtually the same," Nancy-Ann DeParle, White House Deputy Chief of Staff, wrote on the White House blog.

But she said the report didn't provide a complete picture because it didn't include certain ACA provisions that are indirectly expected to save millions of dollars, including a prevention initiative aimed at reducing hospital-acquired conditions and hospital readmissions, as well as bundled payment programs and support for accountable care organizations.

"We are confident that these reforms ... will help make our healthcare system more efficient, provide better healthcare to millions of Americans, and bring down healthcare costs for all of us," DeParle wrote.

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